When a creditor concludes that it's not going to get the money it's owed on an account, it "charges off" the account. That means it writes off the debt as a loss and closes the account to future use. Charge-offs can appear on your credit report for up to seven years.
The Seven-Year Clock
The federal Fair Credit Reporting Act governs how long information can remain on your credit report. Under this law, most negative information, including charge-offs, must be removed from credit reports when it is seven years old. The seven-year "clock" typically starts running on the date of the charge-off.
Settling a Charged-Off Account
Just because a debt has been charged off doesn't mean it's erased. The company can still try to collect. You can also go to the company and either pay what you owe or negotiate to pay a lower amount, referred to as a settlement. The fact that you have taken care of the debt will be noted in your credit report, typically as a "paid charge-off" or "settled charge-off." This might even help your credit score, since a paid account is better than an unpaid one. However, the account will still remain on your credit report for the same seven years, starting from the original date of the charge-off.
Assuming that a charge-off on your report accurately reflects the state of that account, you can't get it taken off before the seven-year period runs out. As the Federal Trade Commission notes, "No one can legally remove accurate and timely negative information from a credit report." Any "credit repair" company that says it can do so may be running a scam.
Cam Merritt is a writer and editor specializing in business, personal finance and home design. He has contributed to USA Today, The Des Moines Register and Better Homes and Gardens"publications. Merritt has a journalism degree from Drake University and is pursuing an MBA from the University of Iowa.